Jim: Your experience is very interesting. You make a good point that new technologies often fail in the commercialization process, whether backed by

Message 1 of 6
, Sep 19, 2011

Jim:

Your experience is very
interesting. You make a good point that new technologies often fail in
the commercialization process, whether backed by government or the private sector.
Commercialization is not an easy process. DOE is not the only
government agency that supports new market entrants, USAID and others also
share that role. (DARPA really did invent the Internet.) Comments made by
ex-leaders of USAID and others at the BBI bio-refining conference last week
were that USAID does a better job of assuming and managing technology and
commercial risk on behalf of the public interest than does DOE. In fact
some of the mechanisms used by USAID are being deployed in the private sector;
insurance companies adopting USAID practices to cover the burden of commercial
failure.

Nevertheless, DOE is subject to
political pressure and Solyndra’s failure was exacerbated by a lending
process that was politicized. There was a failure of business due
diligence in DOE lending to Solyndra. E-mails from members of government
clearly indicate that due diligence was not complete. The Administration
rushed the process to declare a green manufacturing victory. The amount
of the loan guarantee, $500 Million was too high. Commercialization has
many stages. Initial lab success may not translate into critical
manufacturing success. Smaller loans that could have progressed studies
through manufacturing feasibility would have been much more prudent than the
large amounts given.

I know individuals in
Houston who were also leaders of the
Clinton/Richardson DOE. They frequently comment that the technology money
lending process of the US Government has become horribly politicized. When
politics gets in the way of sound business and technology due diligence, the
inherent risk of commercialization becomes higher.

As a former
Clinton appointee to the US Department of
Energy, I can affirm that commercialization of technologies developed with US
taxpayer funds is a great challenge, but not for the reasons stated.
DOE is very sophisticated -- it contains our national labs after all. If
a technology offers low risk and high return, then the private sector
commercializes it and makes a profit. However, if the technology is high
risk or presents a marginal return on investment (but has some non-monetary
environmental benefit), the private investors (i.e. banks, angels, hedge funds,
multi-national energy companies, etc.) will not touch it. When Bill
Richardson was Secretary of Energy, we coined the term "bleeding edge
technology" due to the significant potential for financial loss. The
private sector, and the insurance companies that they can shift their risk to,
stay away from the bleeding edge.

The role of government is to assume the
risk the private sector will not with loan guarantees. The Office of
Fossil Energy, where I served, calculated that if 4 out of 10
commercializations succeed, the overall program would be a financial
success. It is in the public interest to take that first step onto the
bleeding edge -- especially if a more enviornmentally benign technology is
involved. Once the first instance becomes a proven success due to a
government sponsored pilot program, the private sector, and its investors, will
step in and embrace the new technology. Only then does it get the label
"cutting edge" and become commercialized.

During my tenure at DOE, I had the
privileged of learning from research managers at DARPA who
conduct the most risky government research in the world. Their
failure rate is very high, but the payoffs, like airplane and submarine stealth
and smart bombs that minimize civilian damage, pay huge dividends for the
Defense Department. They are also very strict about de-funding a project
if the probability of success gets too low. Perhaps, the only thing the
current DOE may have been guilty of was not pulling the plug sooner.

Government is not the private sector, and
should not be compared to it. The American public needs to accept
some failure to gain its long term goals. Let's hear about all the
billions of successful loans made by DOE and how they far outweigh the
disappointment of Solyndra.

Politicization of
government money processes is a real danger and hurts us all. I attended
this week’s BBI BioRefining conference. Biofuels policy and
regulation is administered by 2 government agencies, DOE and USAID because of
the agricultural basis, while solar/wind/geo tend to be administered by DOE
alone. There is some overlap – USAID can involve solar/wind
projects for rural development for example. But comments among presenters
knowledgeable about both DOE and USAID were that USAID is much smarter.
DOE lacks specialists knowledgeable about the technologies and industries
they cover. Whereas USAID has specialists with extensive experience in
the technologies, industries, markets and policies. USAID has more
defined tranches of expertise, DOE lumps all renewables and efficiency in a
single pool.

The specific comments
about Solyndra were that DOE did not understand Solyndra’s technology,
its capabilities and limitations, stage of development or market. DOE
doesn’t understand the commercialization process – what it takes to
move a technology from conception to full manufacturing. Clearly from
e-mails that have surfaced, solid business due diligence was not done for
Solyndra’s loans.

I’ve noticed
DOE’s politicization locally. DOE appointments were made for solar
positions in our area to gas experts with no experience whatsoever with solar
technology or solar industry, but because of ties to DOE developed from a
history of positions with companies like ExxonMobil, were awarded development
roles that frankly did nothing to help a build a local solar market.
This kind of politically motivated appointment hurts fledgling
renewable industries.

Overall, considering the money blown on the Banks, the
various corporations, and even bailouts for McDonalds . . . the money
loss is pretty trivial.

The loss in this is that the design had some good special
application sites -- like high wind areas, along the coast. These tubes
had much less flat surface area to catch the wind than traditional flat
panels, and we would pay premium for that in small quantities for certain
sites.

If they had not tried to inflate it beyond its practical
demand, it would have been fine. In general, most of .gov programs
should probably be focused towards the Greatest Good for Greatest Number of
People. Whole mess reminds me of Bling-Bling thinking. Gotta get
away from various .gov and Ivory Tower idiots who think that new glamour toys
are always the best.

I have no special knowledge about 2, 3, or 4. I don't find
it particularly surprising that the Obama Administration and the DoE are
denying any wrong doing. Their denial is certainly not evidence of innocence
any more than the accusation is evidence of guilt.

However, on the topic of "1. Why did Solyndra fail?" I believe the
answer is pretty good.

There was a temporary spike in silicon prices right around the time Solyndra
started.

The whole enterprise was based on the assumption that the price of silicon
would stay high forever. That assumption was really just a form of commodity
speculation.

Now that prices are low again, their process is no longer cost effective.
There is no reason to think the prices will spike again, so the long-term
prospects are very poor.

We should probably keep the technology around "just in case", but
it makes no sense to continue production. The money would be better spent on
silicon technologies.

Those are the facts as I see them. Purely objective.

As for the more subjective lessons, one I would draw is not to subsidize
producers. If you are going to subsidize, subsidize the consumers. I think
the loan guarantee program is a bad idea and should be discontinued. The
money should be reallocated into consumer subsidies.

That way the government isn't picking which type of panel technology to
persue, they are leaving that decision to consumers (and
specifiers/installers). They will work together to get the best system for
the lowest price.

That leaves which technology to persue to venture capitalists and engineers,
who are probably going to do a better job than bureaucrats. It also keeps
companies from buying off politicians. Even if everyone involved is innocent,
it's easy to see why people think there was wrong-doing. This is not creating
a good incentive structure, and it's just a matter of time before someone
takes advantage of it.

If politicians would be a little less "reflexively attack" and
"reflexively defend", I think both sides would agree the loan
guarantees are inferior to simple consumer subsidies.

Republicans should agree because reclassifying the money is budget neutral,
and Democrats should agree because it spends the same money more wisely.
However, I am probably giving them both too much credit. Rewarding campaign
contributors is pretty much what politicians do.

>
> The political firestorm continues for bankrupt PV module manufacturer
> Solyndra and its infamous $535 million loan guarantee from the

w:st="on"> U.S.

> Department of Energy (DOE).
>
> On the heels of the FBI's arrival last week at the company's

w:st="on"> California

> headquarters for an unspecified search, the U.S. House of Representatives
> has begun an investigation into whether Solyndra - and the Obama
> administration - engaged in wrongdoing when the company was offered its

loan

> guarantee in 2009.
>
> At a Wednesday hearing on Capitol Hill, representatives from both sides

> into partisan sniping. However, it zeroed in on a few crucial questions

that

> will likely dominate ongoing discussion of the Solyndra scandal.
>
> Most importantly for the solar sector, the answers to these questions

could

> determine the course of the federal government's future support - or

lack of

> support - for solar and other forms of renewable energy.
>
> 1. Why did Solyndra fail?
> During his opening testimony and the question-and-answer session, Silver
> maintained that Solyndra's proprietary cylindrical-module technology

simply

> fell victim to poor timing. As solar professionals are well aware, the
> market in 2006 and 2007 was vastly different from today's market.
>
> When loan-guarantee application due diligence was starting, Silver said,

> markets over the past couple of years hit across the PV industry.
>
> "These changes were particularly damaging to Solyndra," Silver

added.

>
> Of course, as several members of Congress mentioned during the hearing,

due

> diligence should include the evaluation of future risks and thorough
> industry analysis.
>
> Accepting Solyndra's failure as a consequence of market forces raises

the

> question of whether DOE staffers were fully aware of Solyndra's
> vulnerabilities at the time of the loan guarantee's approval - and, if

so,

> whether they and their counterparts in other governmental departments
> responded appropriately to this knowledge.
>
> 2. Did Solyndra get preferential treatment from the Obama

administration?

> Much of the hearing focused on a critical three-week period in January

2009,

> during which President Bush left office and President Obama took over.

At

> this point, the DOE's judgment of Solyndra's loan-guarantee application
> changed from critical to favorable - an abrupt change of heart that has
> raised red flags.
>
> "One of our witnesses today, Mr. Silver, attempts to claim in his

written

> testimony that the Bush administration is equally at fault for approving
> Solyndra and that Solyndra was a train ready to leave the station when
> President Obama took office," said Oversight and Investigations

> due diligence?
> Stearns produced transcripts of emails from DOE personnel regarding the
> timing of the highly publicized loan-guarantee approval, which he said
> contained "disturbing revelations." The approval was allegedly

fast-tracked

> in order to coincide with Vice President Joe Biden's and DOE Secretary
> Steven Chu's appearances at Solyndra's ground-breaking ceremony.
>
> Portions of emails distributed by Stearns appear to support this

assertion.

> "We would prefer to have sufficient time to do our due diligence

reviews and

> have the approval set the date for the announcement rather than the

other

> way around," an unidentified DOE staffer wrote in one of the messages.
>
> But Rep. John Dingell, D-Mich., urged his colleagues not to jump to
> conclusions. "I am still waiting to see something that shows

> applicants, insisted that the OMB reviewed Solyndra strictly according

to

> procedure and, in fact, increased its credit subsidy score to make it

more

> conservative in the final approval stages.
>
> "I want to be crystal clear . these scheduling requests had no

impact

> whatsoever on the credit subsidy score that was given to the

project," he

> said.
>
> 4.Should the U.S.

government continue to invest in solar power?

> As to whether Solyndra's failure should cause the federal government to

take

> a hard look at investing in any solar manufacturing projects or
> installations, the members of Congress largely took their stances along
> party lines.
>
> "I disagree vehemently with the policy conclusions my Republican

colleagues

> have already drawn," said Rep. Henry Waxman, D-Calif. "They

say Solyndra

> shows the failure of solar investments."
>
> "If you live in reality, you know that the world cannot continue

its

> reliance on fossil fuels," he added, stating that ceasing federal

support

> would be an "economic death sentence for fledgling renewable energy
> companies that have to compete against both heavily subsidized

> module manufacturers, whose dominance in the marketplace was discussed
> numerous times during the hearing.
>
> According to Silver, the Chinese government has already committed more

than

> $30 billion to several large manufacturers, in addition to providing

other

> incentives. The U.S. '

investments pale in comparison.

>
> Silver reiterated that the DOE loan-guarantee program allows the

w:st="on"> U.S. to

> begin to compete in what is projected to be a lucrative market. "I

can't

> imagine a scenario under which we, as a country, will walk away from an
> industry that will be one of the biggest in the world," he said.
>
> Stearns, however, indicated that walking away from - or, at least,
> intensively questioning involvement in - the solar sector may be a good

idea

> for the government.
>
> "Go back and look at all the solar energy projects, and you'll

realize that

> this industry is truly dependent on subsidies," he said. "When

you look at

> all this and do the analysis, even at $140 per barrel [for oil], the

idea

> that solar panels are going to break even is questionable."
>
> Zients stressed that aside from Solyndra, other solar energy firms that

have

> received loan guarantees are likely to deliver on their promises to the
> solar sector, U.S.

taxpayers and the country has a whole.

>
> "The program is relatively new, so loans have recently closed, for

the most

> part," he said. "We have every reason to believe that the

portfolio, as a

> whole, will perform."
>

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